Sunday 4 December 2005 05.04 EST
First published on Sunday 4 December 2005 05.04 EST

High street banks will have to give up 'dormant' cash worth up to £1.5 billion under plans to be announced by Gordon Brown tomorrow.

In a highly controversial move likely to infuriate the main financial institutions, Brown will say he is prepared to legislate to unlock money languishing unclaimed in bank accounts.

Assets will be regarded as dormant if they are left for 15 years.

The money will be used to fund charities and raise enterprise and skills levels in some of Britain's most deprived areas.

Banks have long resisted the move. Dormant cash has been used to flatter their profits, and the least they want is to retain power over where the cash goes, channelling the money through their own charitable foundations.

But campaigners believe that dormant cash should be regarded as 'the people's money' and that the banks must relinquish control over it. Campaigners have calculated that at least £1.5bn has been unclaimed for more than 15 years.

The suggested 15-year time limit on dormant cash is thought likely to be acceptable to the public. It is also thought that people will retain the right to reclaim cash at any time.

The Treasury will warn the banks that unless they agree to the assets being distributed to good causes, the government will legislate to seize control of the cash. It is thought that the government wants to use established bodies such as community development finance institutions and lottery funds to distribute the money rather than create arms-length vehicles, which would involve a new level of administration and increase costs.

The Treasury wants to stop the windfall being brought on to the government's balance sheet because Brown does not want to be accused of raiding 'granny cash' to close his budget deficit.

'Brown is sensitive to it being seen as a tax,' said a source close to the Treasury. 'It can't be seen as smash and grab.'

Banks have indicated that they are prepared to release £1bn to charity as a goodwill gesture.

Matthew Pike, executive director of the Scarman Trust and a prime mover behind the campaign to release dormant cash, said: 'We're delighted at the reported willingness of banks to draw a line and acknowledge their historic liabilities, which moves the debate on in a positive way.'

Last week, Labour Party donor Sir Ronald Cohen was appointed to head a Commission on Unclaimed Assets, which in June will recommend how the cash can be used for good causes. The commission is independent of the Treasury and banks; it will take evidence from financial institutions in coming weeks.

While direct investment in deprived areas might amount initially to £1.5bn, and an additional £100m in successive years, the very existence of these sums could lever in billions of pounds more through private investment.

Labour made a commitment to the policy in its election manifesto last April.

Also lying dormant are life policies, pension plans, windfall shares and dividend cheques, plus around £3bn of uncollected premium bonds and lottery winnings.

Treasury officials have visited Dublin to study how the Irish government adopted the policy four years ago, and were impressed by its results.

The Social Enterprise Coalition is keen to see some of the money raised used to build capacity in community-based businesses so that they can challenge big business and offer to run key public services such as medical centres and schools.